1989: It was a year of neon colors, big shoulder pads and even bigger hair. For Dennis Stattman, 1989 marked the start of a journey. He was a founding portfolio manager of the BlackRock Global Allocation Fund, a global, flexible, multi-asset mutual fund that was a novel idea for its time.
25 years later, the fads have faded, but Dennis’s journey continues strong. And as much as we’d like to wax poetic and say it’s been a long and winding road, that simply isn’t the case. In fact, the Global Allocation Fund has been able to capture the full growth potential of the global equity markets over its 25-year history, but with one-third less risk.*
It’s an accomplishment, and a milestone anniversary, worthy of mention. In that spirit, this blog post spotlights, in Dennis’s words, seven well-worn secrets to investment success.
1. “Diversify, buy low, sell high, have a plan.”
The virtues of diversification are long touted: All markets and assets are not affected by the same factors in exactly the same way, so the more diversified your portfolio, the better equipped it may be to weather a range of scenarios. And never overpay for an investment. Get in at the right price, the seasoned investor says, and you have a better chance of getting out at the right price. Finally, do it all within the framework of a well-thought-out plan. Having a plan can help you stay the course, even when volatility tempts you to stray.
2. “Beware risking a lot to make a little. Be open to risking a little to make a lot.”
Dennis and his colleagues, veteran portfolio managers Dan Chamby and Aldo Roldan, know that investment success comes not only from what you invest in, but also what you avoid. Case in point: They avoided the hot dot-coms in the late 1990s. Not everyone understood or agreed at the time, but it ultimately served their investors well.
3. “Know that things change.” (Therefore, the need for flexibility does not.)
Who could have predicted 30 years ago that U.S. interest rates would go from 15% all the way down to 1.7%? Clearly, things change — and sometimes they change a lot. For that reason, Dennis says, the need for flexibility never changes. Success through all market cycles requires an unfettered ability to adjust and adapt.
4. “When markets are happy, think about what could go wrong. When markets are in despair, think about what could go right.”
A contrarian mindset can allow you to see opportunities before the broader markets have acknowledged them. The goal: To enter underappreciated investments at attractive prices, and then exit once sentiment has rewarded them. This same mentality has allowed the Global Allocation Fund to avoid some “landmines” over the years and, ultimately, to survive in a competitive multi-asset category that has seen many others come and go.
5. “Do not allow analysis to trump common sense.”
When covering literally a world of opportunity, analysis is absolutely critical. But the Global Allocation Fund portfolio managers will be the first to acknowledge that the numbers do not necessarily tell the entire story—it’s the people looking at the numbers that make all the difference. And that leads to the next critical ingredient in Dennis’s secret sauce…
6. “Work with smart people.”
For Dennis and his colleagues, this has meant building a team of investors (more than 40 today) who both inspire and challenge one another’s assertions to arrive at what they believe to be the 700+ best investment possibilities available. For an individual investor, this might mean choosing high-conviction strategies with smart management teams that have a long-term record of success.
7. “Have fun, make money!”
Dennis has been focused on just that since he was a teenager in Kentucky overseeing his mother’s retirement assets. It’s the same spirit that inspires him to continue the journey he started with the Global Allocation Fund a quarter century ago.
* Based on annualized standard deviation of monthly returns for institutional shares from 2/28/89 to 12/31/13, compared to the FTSE World Index. Standard deviation is only one element or risk. Other risk factors should be considered. USR-3597